NZD/USD remains depressed below 0.6000 mark, lowest since May 2020

• NZD/USD struggles to gain traction and languishes near its lowest level since May 2020.
• Signs of stability in equity markets undermine the USD and seem to offer some support.
• Bets for aggressive Fed rate hikes support prospects for a further downfall for the major.

The NZD/USD pair struggles to capitalize on its modest intraday uptick and languishes near the lowest level since May 2020 touched the previous day. Spot prices remain on the defensive below the 0.6000 psychological mark through the early European session and seem vulnerable to sliding further.

Signs of stability in the financial markets seem to undermine the safe-haven US dollar and offer some support to the risk-sensitive. That said, firming expectations that the Federal Reserve will keep raising interest rates at a faster pace to tame inflation acts as a tailwind for the greenback and continues to cap the NZD/USD pair.

The markets were quick to react and started pricing in the possibility of a full 1% rate hike at the September FOMC meeting following the release of stronger US consumer inflation data on Tuesday. This, in turn, pushed the yield on rate-sensitive two-year US government bonds to an almost 15-year high and should offer support to the buck.

The prospects for a more aggressive policy tightening by the Fed, along with COVID-19 curbs in China and the protracted Russia-Ukraine war, have been fueling recession fears. This might keep a lid on any optimistic move in the markets, which further favours the USD bulls and supports prospects for additional near-term losses for the NZD/USD pair.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD price dynamics. This, in turn, should allow traders to grab short-term opportunities around the NZD/USD pair.

Technical levels to watch